PRO Top Ideas
Top Ideas are high-conviction long or short ideas focused on market mispricings with asymmetric risk/reward profiles.
Carnival: Declining Fuel Costs To Lift Profits In 2015 And Beyond
- Far too little has been written about the benefits of lower oil prices to the global cruise industry, which is led by Carnival.
- Carnival is the market leader within the cruise industry on both a global basis and in the industry's most important growth market: China.
- Carnival has the industry's strongest balance sheet on a net-debt-to-EBITDA basis.
- Growth in yields set to continue into 2015 alongside double-digit falls in fuel expenses.
- Assuming current oil market conditions continue, pressure will likely increase on Carnival to restructure/abandon its fuel derivative portfolio, upside potential of this move not currently in forward estimates.
Investment Technology Group: A Profitable Investment In The Global Capital Markets
- Despite a 3-decade presence on Wall Street, few investors are likely to have heard of ITG.
- ITG has a clean balance sheet, with over 16% of its market capitalization in net cash.
- Increasingly diverse revenue base, from both a geographic and business perspective is helping drive double-digit growth in operating profits and EPS.
- Management has a solid track record of returning capital to shareholders; since 2009, over 20% of shares have been repurchased.
QLogic: A Logical Buy For 2015
- Despite clear signs of progress in its turnaround, shares of QLogic remain undervalued on both an absolute and relative basis.
- Signs of stabilization in the Fibre Channel market and continued growth in Ethernet sales have allowed the company to expand its market share.
- Despite gross margin pressures, tight cost controls have helped minimize the impact to operating margins.
- Pristine, debt-free balance sheet, with almost 30% of market capitalization in cash.
Check Point Software Technologies: Calling Activists As Cash Balances Continue To Increase
- Check Point's balance sheet is bloated with cash, with net cash & investments amounting to almost a third of the company's market capitalization.
- The company's operating margins and cash flow generation are higher than any of its competitors, including Microsoft.
- Combination of steady, but uninspiring revenue and EPS growth and continued growth in cash balances has created an attractive entry point for activist investors.
- Check Point has a long track record of share buybacks; since 2006 the company has bought back over 20% of its shares.
HealthEquity: A Niche Pure Play On Healthcare Reform
- HealthEquity offers investors a unique and focused opportunity to profit from the ongoing implementation of the Affordable Care Act.
- Solid market position and product offerings have led to double-digit revenue and profit growth.
- Scalable business model has resulted in expanding EBITDA margins, with further increases to occur in the next several years.
- Pullback from post-IPO highs offers an attractive entry point for long-term investors.
Arris Group: Finding Profits In Your Cable Box
- The acquisition of Motorola Home has been very successful, resulting in double-digit growth in operating income and EPS.
- Post-earnings selloff on unfounded concerns surrounding bookings has created an attractive entry point.
- Continued balance sheet deleveraging will lead to increased ability to return capital to shareholders.
- Despite year-to-date gains, shares continue to trade at modest multiples, both on an absolute and relative basis.
DTS Inc.: A Mundane Business, With Exciting Profits
- Margin-rich royalty revenues result create business with material operating leverage.
- Partnerships with majority of leading consumer electronics companies create tailwinds as network-connected electronics sales continue to grow.
- Clean balance sheet with over $2 per share in net cash.
Flextronics: Solid Free Cash Flow Deployment And Cost Controls To Drive Further Upside
- At over 12%, Flextronics' free cash flow yield is the highest in its peer group.
- Tight cost controls are set to underpin expanding operating profit and margins.
- Flextronics has demonstrated a commitment to returning capital, having bought back almost 10% of the company in fiscal 2014 alone.
- The company's upcoming May 21 analyst and investor day will likely feature further updates on capital allocation and cost controls, which may drive further upside.
- Diversity of customer base may limit ability for short-term momentum rallies, but offers long-term stability.
American Airlines Group: As The Integration Continues, Solid Upside Ahead
- Despite leading the domestic airline industry in forward EPS growth, American sports the industry's lowest P/E multiple.
- Hundreds of millions of dollars in interest savings are set to flow through to the company's bottom line.
- American now has a lower cost structure cost than either Delta or United, yet receives little credit for it.
- Through Chapter 11, leverage has been reduced to industry-average levels.
- Conservative synergy targets create room for possible increases to the company's forecasts.
Lifetime Brands: A Mundane Company, With Exciting Profit Potential
- Lifetime's mundane business belies its profit potential.
- The company expanded gross margins during the key holiday quarter, alongside rising revenues and EPS.
- With insiders owning 22% of outstanding shares, capital is being deployed in an accretive fashion.
- Continued moves to enlarge brand portfolio and international presence will increase Lifetime's addressable market.
G-III Apparel Group: Unjustified Discount Belies Solid Execution And Opportunities Ahead
- G-III managed to not only grow revenues, EPS, and EBITDA in the holiday quarter, but posted rising gross margins across all segments.
- Despite solid performance in fiscal 2014, shares trade at meaningful discounts to peers.
- With management owning over 16% of outstanding shares, clear incentive to deploy capital in an accretive fashion.
Nexstar Broadcasting Group: In 2014, Its Star Will Continue To Shine
- Sizable pullback has created an attractive entry point in NXST.
- Balance sheet is stronger than a cursory glance suggests.
- Dividend increase in early 2014 suggests confidence in future cash flows.
- Kate Spade & Company: The Crown Jewel Begins To Shine, For Investors And Bidders
- Sonus Networks: Connecting Shareholders To Double-Digit Returns In 2014
- Air Canada: Finding Value With Our Friends To The North
- SoftBank: For Exposure To Alibaba, Look To Tokyo, Not Sunnyvale
- RF Micro Devices: A Return To Growth Set To Reward Shareholders
- Crédit Agricole: Farming Double-Digit Returns At France's Largest Bank
- TIM Participações: As The Chess Pieces Move In Europe, Double-Digit Upside In Brazil
- Regions Financial: Double-Digit Upside As Southern Recovery Continues
- Meaningful Upside Ahead As More And More Consumers Join The Devil In Wearing Prada
- Volaris: The Spirit Airlines Of Mexico Is Poised To Soar
- Pacific Sunwear: Finding Sunshine Amidst Teen Retail Gloom
- Tilly's: Reset Of Expectations, Favorable Valuation To Drive Recovery In 2014
- Children's Place: Child-Sized Clothes, Adult-Sized Potential
- Commtouch Software: A Return To Earnings Growth To Reward Investors
- Spirit Airlines: A Solid Derivative Play On The US Airways-American Airlines Deal
- Pericom Semiconductor: Recovering Business & Cash Deployment To Drive Upside
- Commerzbank: Substantial Value In Germany's 2nd Bank
- Christian Dior: A Better Way To Invest In Louis Vuitton
- Burberry: CEO Transition Offers Attractive Entry Point Into Long-Term Luxury Growth
- Lionsgate: Satiating Shareholders As The Hunger Games Approach